group 8 ethics telenor gp
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This is a research on conflict between Prof. Yunus, Noble Prize Winner & Telenor, ethical issues of Grameen Phone, illegal VoIP activities.TRANSCRIPT
Ethics in International Value Chain
Networks: The Case of Telenor
in BangladeshAndreas W. Falkenberg
Joyce Falkenberg
ABSTRACT. What is the responsibility of multinational
enterprises in international value chain networks in
countries with inadequate institutions? In this article, we
present an ethical framework that allows for evaluation of
institutions at the macro, mezzo, and micro levels. This
framework is used to analyze the case of Telenor in Ban-
gladesh. Telenor is a telecommunications company based
in Norway. It is the majority owner (62%) in Grameen-
phone in Bangladesh. The minority owner is Grameen
Telecom, which is part of the Grameen group created by
the pioneer of micro finance, Nobel Prize winner Dr.
Mohammad Yunus. The case of Telenor in Bangladesh is
one of many examples of international value chain net-
works that span different jurisdictions. The case focuses on
relevant issues in the value chain networks: the institutions
in Norway and Bangladesh, the owners, suppliers, and
customers. We highlight the responses made by the major
actors in the value chain, and conclude the article by
analyzing the responsibility, or ‘‘ability to respond’’ of
these major actors.
KEY WORDS: ethics, emerging markets, Grameen-
phone, institutions, international value chain networks
Telenor addresses unacceptable working conditions in
Bangladesh (14 May 2008). A TV documentary by
Danish journalist Tom Heinemann has revealed
unacceptable working conditions, pollution and
underage labour at the facilities of mobile antenna
towers manufacturers in Bangladesh. (www.telenor.com/
workingconditions-in-Bangladesh/)
The focus on ethics in business has been increasing;
however, most of the theoretical and empirical work
has focused on firms operating in one jurisdiction inside
one culture (e.g., Hunt and Vitell, 2006) or on multi-
national enterprises (MNE’s) and their subsidiaries in
jurisdictions with reasonably benign institutions. Little
research attention has been given to normative ethical
issues in cases, where international value chain net-
works for MNE’s include suppliers or customers in
countries plagued by poor governance and inadequate
institutions. (See, for example, Corruption Index
Transparency International, 2007; Human Develop-
ment Index UN, 2007/08; the Economic Freedom
Index, Heritage Foundation, 2008.) These situations
present complicated ethical issues that need to be
adjudicated and resolved by a set of neutral standards
and not (necessarily) by the values present in the cul-
tures of (a) the home country or (b) the host country.
The purpose of this article is to present such a frame-
work for cross cultural ethical analysis. The framework
is applied to the case of Telenor’s activities through
Grameenphone in Bangladesh.
International value creation networks
An international value chain network is a series of
organizations that are linked together by transactions
and/or exchanges across countries (Falkenberg,
Andreas W. Falkenberg (PhD, University of Oregon) is a
Professor of Marketing and International Business at the
Faculty of Economics and Social Sciences, University of
Agder, Kristiansand, Norway. His research interests have
focused on culture and ethics in multinational enterprises. He
is the director of the PhD Program in International Man-
agement at the University of Agder.
Joyce Falkenberg (PhD, University of Oregon) is a Professor of
Strategy at the Faculty of Economics and Social Sciences,
University of Agder, Kristiansand, Norway. Her research
interests have focused on strategy implementation and change;
and more recently strategy in emerging markets.
Journal of Business Ethics (2009) 90:355–369 � Springer 2010DOI 10.1007/s10551-010-0429-x
2007). Figure 1 depicts six organizations linked to-
gether (up-stream to down-stream) in a value crea-
tion network across three jurisdictions.
Macro, mezzo, and micro level institutions
The exchanges or transactions in multinational value
creation networks are governed by different sets of
institutions, that is, (1) laws, (2) regulations, (3)
norms, and (4) values that constitute framework
behavior for a country (North, 1990). Macro insti-
tutions are those that affect international transac-
tions. Mezzo institutions are jurisdiction specific at
the national level for each country and are related to
the governance of the country. Micro institutions
are the traffic rules of behavior emanating from the
culture itself. For some countries it may be necessary
to revise North’s 1990 definition; for example, the
formal institutions in a country are based on (1) laws
and (2) regulations that may prohibit certain prac-
tices (corruption, child labor, and unsafe work
practices). However, the more informal institutions
based on local (3) norms and (4) values practiced at
the mezzo level may tolerate and perhaps accept
these practices. In other counties the mezzo insti-
tutions may favor the ruling elites and be contrary to
the local cultural values. These countries are often
plagued by limited economic freedom, monopolies,
corruption, and inadequate legal systems.
In addition to the mezzo and micro levels, the
value creation system is also subject to international
(macro) institutions such as the trading regimes
practiced by the EU, NAFTA, or agreed by the
WTO.
Responsibility
In this section, we focus on the issue of responsi-
bility, in particular, is a firm responsible for the
activities of its suppliers and customers in their value-
creating network? It is clear that an organization is
legally responsible for how it operates vis-a-vis close
stakeholders, such as the employees and its owners.
A firm is also legally responsible for the contracts it
has with internal and external stakeholders. Can an
organization be held responsible for the activities of
other organizations, up or down the value-creating
network? The easy answer to this question is that a
firm is response-able if it is able to respond to a
problem. Firms may have ‘‘power,’’ or the ‘‘ability
to change the behavior’’ of actors up- and down-
stream. The ability to change the behaviors of others
can be used to promote improved consequences
(outcomes) for the parties affected by the transac-
tions. This would include both acts committed or
omitted. Thus, a failure to remedy a problem can be
considered a breach of good ethics. Thus, in addition
to the product specification and terms of payment, a
contract could include statements about working
conditions for the employees of the supplier. While
this is not legally necessary, there may be a moral
obligation to do so if it is possible. It is also important
to recognize that not all firms are in a position of
power vis-a-vis their trading partners. In extreme
Micro Institutions Culture A
Mezzo Institutions Jurisdiction A
Macro - International Institutions
Micro Institutions Culture B
Mezzo Institutions Jurisdiction B
Micro Institutions Culture C
Mezzo Institutions Jurisdiction C
Figure 1. Institutions governing international value creation networks.
356 Andreas W. Falkenberg and Joyce Falkenberg
cases, they may not be able to respond or use a voice
option, leaving them little choice but to exit.
Ethics and institutions
We study ethics in order to improve our lives; the
principal concern is the nature of human well-being
(Stanford encyclopedia of philosophy, http://plato.
stanford.edu/entries/aristotle-ethics/). Following this
tradition, the purpose of ethics can be stated as ‘‘pro-
moting flourishing lives,’’ or as Aristotle wrote in Eu-
damian Ethics: ‘‘correct actions lead to the greater well-
being of the humans immediately connected to the
(human) agent.’’ In this section, we focus on the eval-
uation of institutions, as they promote flourishing lives.
Some institutions do this better than others. Institutions
should therefore be subject to an ethical analysis to see if
they are adequate, that is, if they promote good out-
comes for the affected parties. Author (2007) developed
a taxonomy to evaluate institutions. He draws on three
perspectives of ethics: utilitarianism (and market
economics), human rights, and justice.
Figure 2 assumes that we are programmed by our
cultures into a set of values, which constitute our
moral compass. It consists of the way we feel about
right and wrong (an affective component) as well as
the reasons why something is considered right or
wrong (a cognitive component).
We are all ‘‘culturally programmed’’ (Hofstede,
1997) into a specific set of values depending on when
and where we were born and raised. Therefore, it is
not sufficient to rely on one’s own conscience when
dealing across cultures. The institutions in one’s
own culture may be inadequate or the institutions
encountered in the host culture may be inadequate.
With the above model as a base, the organization
should evaluate the institutions in the cultures in
which it will operate: will the parties affected by my
transaction experience ‘‘flourishing lives’’ if the
organization follows the relevant institutions? Or, will
parties affected by the exchange experience dimin-
ished flourishing?
Are the institutions ‘‘adequate’’ in the sense that
they promote flourishing lives? Utilitarianism, as
conceived by John Stuart Mill (1863) is a cost/benefit
approach to ethics. The unit of analysis is, however,
neither the individual nor the organization nor the
country, but the consequences experienced by ‘‘the
whole sentient creation’’ or all affected parties. One
can also use a human rights perspective (UN and/or
Ths. Donaldson 1989) and a justice perspective based
an extension of Rawls (1971) by Falkenberg (1996) as
evaluative criteria (see Table I).
The three perspectives, which can be used as a test
of the adequacy of institutions, are thought to be
universal. They represent a basic set of principles,
which are intended to enlighten one’s own cultural
Figure 2. Do institutions promote flourishing? Acts are ethical if they (follow institutions) which promote ‘‘flourish-
ing’’ in terms of utilitarianism and/or human rights and/or justice.
357Ethics in International Networks
values as well as those of other cultures. The Institu-
tions may not promote flourishing as prescribed by
utilitarianism (e.g., infliction of unnecessary pain or
deprivation of benefit), human rights (e.g., lack of
physical security or an unfair trial) or justice (e.g.,
non-survival or treating someone as a second class
citizen). These institutions should be judged as
‘‘inadequate.’’
Response options
Having determined the adequacy of the institutions,
in regard to whether they promote flourishing, a
firm needs to determine if it is responsible (able to
respond) to problems that result due to inadequate
institutions. Several options are available as described
in Table II. A firm can try to avoid following
inadequate institutions and avoid violating adequate
institutions. It may be appropriate for a firm to
behave better than what the local institutions pre-
scribe. For example, people of different races can be
treated equally even if this is not legal or common
practice locally (e.g., Sullivan principles during
apartheid). In such a case, a firm may engage in
‘‘benign civil disobedience.’’ A firm can also pay a
living wage even if not required by local mezzo and
micro institutions. This would be an example of acts
‘‘over and above the call of duty.’’
We explain Table II with the following examples.
Example a: Anticorruption laws are on the books.
This would be an adequate formal institution, which
a firm should follow. Not following this formal
institutions would be illegal. However, government
officials practice corruption widely and the courts
are also corrupted, thus the informal institutions
seem to be inadequate. Engaging in corruption
would not only be illegal, but also unethical by the
three tests suggested above. Response options would
be voice or exit. Alternatively, a firm could choose
to go against these inadequate informal institutions
by behaving ‘‘over and above the call of duty.’’ If a
firm is ‘‘able to respond’’ to the issue, they could
insist on transparency and reject corruption.
Example b: Discrimination laws are on the books
(f.ex. Apartheid South Africa). These formal insti-
tutions are inadequate, so following them would be
unethical. A firm could consider ‘‘benign civil dis-
obedience’’ and not practice discrimination. In this
case, the informal institutions (the local norms and
values) in the majority of the black population favor
non-discrimination, so following popular and ade-
quate institution of non-discrimination would be the
right thing to do.
TABLE I
Utilitarianism, human rights, and justice as tests of institutions
Utilitarianism Basic human rights (e.g.) Justice: Principles for ‘‘The Good’’
(conceived under a veil of ignorance in
the original position (Rawls, 1971))
Acts are right in the proportion as
they tend to promote happiness,
wrong if they promote the reverse
of happiness (promote pleasure and
reduce pain)
1. Free physical movement 1. Survival: food, health, education,
hand-over, and integrity
‘‘The standard is not the agent’s
own greatest happens, but the
greatest amount of happens for all…for all man-kind – and not only to
them but to the whole sentient
creation’’
2. Ownership of property
2. Equal moral value: dignity, max
freedom given equal freedom to all,
equality before the law, opportunities,
and human rights
(J. S. Mill, 1863)
3. Freedom from torture
3. Maxi–Min; distribution of index
goods. As much as possible for the
worst off group
(Falkenberg, 1996)
4. A fair trial
5. Non-discrimination
6. Physical security
7. Freedom of speech and
association
8. Minimal education
9. Political participation
10. Subsistence
(Donaldson, 1989)
358 Andreas W. Falkenberg and Joyce Falkenberg
Example c: A supplier has inferior safety standards
resulting in injuries and even death to employees. The
supplier has complied with both formal and informal
institutions and the work conditions are seen as
‘‘normal.’’ The contracting firm, as a major customer,
is not legally obliged to seek to affect a change in the
way the supplier runs her factory – and there is no local
pressure on the customer or the supplier to change
practices. However, it is clear that the practices do not
promote flourishing for the employees by any of the
three ethical tests. If the customer can affect a change
(able to respond) to this problem, they may have a
moral duty to do so, even if it is not required by the
local institutions; formal or informal. It would be
unethical not to go against the formal inadequate
institutions. This would not constitute ‘‘benign civil
disobedience,’’ because the firm is not violating for-
mal institutions, but it would be behaving ‘‘over and
above the call of duty’’ by the local standards. Based on
home country standards, however, the customer
would be expected to seek to affect improved working
conditions with their suppliers.
Telenor in Bangladesh
We now turn our focus to the international value
chain relationships in the case of Telenor in Ban-
gladesh. This case allows us to focus attention on
how firms should deal with these relationships in
countries, in which the institutions are missing or
inadequate (De George, 1993). This extends Spil-
ler’s (2000) proposal of an ethical scoreboard for
firms, in which he suggests that one should ask
critical questions about the relationship with sup-
pliers and customers. Most aspects of institutions at
the macro level cannot be changed; therefore Tel-
enor must decide whether it ethically can adapt to
these institutions. If not, do they choose to exit or
not enter emerging markets in which macro insti-
tutions are inadequate? At the mezzo level, we
analyze whether Telenor can adapt the institutions,
i.e., be a force for changing inadequate institutions.
This focuses attention on when they are ‘‘response-
able,’’ able to respond. The micro institutional level
encompasses the cultural norms. While it would be
an exaggeration to think that any single firm, such
as Telenor, would be able to change inadequate
institutions at the micro level, we do know that
firms, by their actions, can change attitudes, and
thus cultural norms. In evaluating the responses, we
draw on De George (1993) who advocates com-
peting with integrity (i.e., Does Telenor refrain
from taking full advantage of what local, inadequate
institutions might allow?) and Sen (1997) who
speaks of self-imposed constraints (i.e., Does Tel-
enor choose to obey on moral or conventional or
even strategic grounds, rather than pursue profit
maximization in all cases?).
In the following sections, we address the role of
Telenor and Grameenphone toward their value
chain relationships in Bangladesh. We begin by
identifying and analyzing the macro, mezzo, and
micro level institutions governing business in Ban-
gladesh. We then give the background of Telenor’s
activities and responses in Bangladesh. The responses
of the relevant parties are then analyzed, based on
the ‘‘ability to respond.’’ The case material is based
on secondary, publicly available information in order
to reduce any biases that might result from inter-
TABLE II
Alternatives available under adequate and inadequate institutions
Formal institutions
(laws and regulations)
Informal institutions
(cultural norms and values)
Adequate Inadequate Adequate Inadequate
Follow institutions Go ahead Immoral
voice or exit
Go ahead Immoral
voice or exit
ActGo against institutions Illegal Consider benign
civil disobedience
Immoral Consider behavior
‘‘over and above
the call of duty’’
359Ethics in International Networks
views with the companies involved; the one
exception was contacting Telenor to obtain factual
information regarding the board membership of
Grameenphone.
Identifying the institutions
Table III lists a number of formal and informal
institutions, which are relevant as we seek to under-
stand the differences between institutions in Norway
and Bangladesh. As seen in Table III, in some
countries, such as Norway, there is a close correlation
between the formal and informal mezzo institutions as
well as with the (micro) cultural values. This is a result
of a lengthy period of democracy, in which the
electorate has been able to elect representatives who
have promoted laws and regulations representing the
basic cultural values and norms of the population.
Politicians and regulators who may have tried to
promote laws and regulations contrary to peoples’
preferences (the micro institutions) have failed to gain
popular support and not been reelected/re-ap-
pointed. Thus, we observe no real differences
between the formal and the informal mezzo institu-
tions in Norway. However, in Bangladesh there are
differences between the formal institutions and the
informal institutions at the mezzo and micro levels.
In addition, there are big institutional differences
between Norway and Bangladesh. The centralized
political and economic power (=lack of economic
freedom) and corruption found in Bangladesh in-
hibit flourishing. Relative to Norway, Bangladesh
seems to accept a higher degree of child labor and
more unsafe working conditions, even when rele-
vant laws are on the books.
This presents problems for the parties involved.
The Norwegian public, owners, and managers see
the world through their culture’s values and operate
in a very different environment compared to that of
Bangladeshi public, owners, and managers. It will be
hard for Telenor to explain the business practices and
business environment in Bangladesh to Norwegians,
let alone function well in a Bangladeshi environ-
TABLE III
Comparing formal and informal institutions in Norway and Bangladesh
360 Andreas W. Falkenberg and Joyce Falkenberg
ment; and vice versa. Ethical codexes and operating
guidelines conceived in a Norwegian context may
not serve as practical guides for managers in Ban-
gladesh. On the other hand, the Norwegian cus-
tomers, media, government, and public will expect
the firm to behave well by Norwegian institutions.
Evaluating the institutions
We can now look at the two countries, Norway and
Bangladesh, in terms of flourishing, or quality of life.
In a situation with adequate institutions, one would
expect to observe great flourishing. If the institutions
promote good utilitarian consequences and if they
promote basic human rights as well as justice as
described above, then this should be reflected in
some of the international measures on quality of life.
In Table IV, a number of readily available indicators
have been chosen that are thought to be surrogate
indicators of human flourishing.
The differences in flourishing are great. The table
illustrates the differences in the environment, in
which Norwegian and Bangladeshi managers find
themselves as they seek to cooperate.
The beginnings of Grameenphone
The Grameenphone dream began when, in 1994,
Iqbal Quadir, born and raised in Bangladesh until he
left to study in the United States, convinced Tormod
Hermansen, who was then CEO of Telenor, the
Norwegian owned telephone service provider, to
join in the development of mobile telephone service
for the villages in Bangladesh. Norwegians consider
themselves supportive of economic development in
poor countries. They contribute about 1% of GNP
for development purposes, which is among the most
generous in the world (www.odemagazine.com/
doc/22/).
Quadir also contacted Grameen Bank to be a
partner for the distribution of phones. Grameen Bank
was founded by Professor Mohammad Yunus who
received the Nobel Peace Prize in 2006 for having
pioneered microfinance in Bangladesh. Professor
Yunus has achieved a prominent status as a spokes-
person for, and a helper of, the poorest of the poor.
He has established a number of ventures including
Grameen Bank, Grameen Communications, Grameen
Fund, Grameen Knitwear, Grameen Shakti, Grameen
Shikkha, Grameen Solutions, Grameen Telecom,
Grameen Trust, and Grameenphone (www.grameen-
info.org).
Quadir’s conversations with Professor Yunus
resulted in the Village Phone program, coupling
Grameen Bank’s microcredit with mobile telephony
to make telecommunications accessible to the rural
poor (Telenor ASA, 2006). Loans could be issued to
village telephone ladies who would use the mobile
telephone to earn money and thus become an income
generating enterprise in their villages. These loans for
telephones would help an entire village, supporting
the ideals of Grameen Bank, and provide every
TABLE IV
Indicators of realized flourishing in Norway and Bangladesh
Bangladesh Norway
GDP per capita, 2007 (CIA Fact Book) $475 $83,000
GDP per capita/ppp 2007 (CIA Fact Book) $1400 $53,000
Life expectancy 2007 (CIA Fact Book) 62.8 years 79.8 years
Gini coefficient, 2000 (CIA Fact Book) 33.4 28
Literacy rate: UNDP 2007/08 47.5% 99%
Quality of life (Rank from UN Human
Development Index, 2007/08)
140 of 177 2 of 177
Corruption (Rank, from Transparency International
Corruption Index, 2007)
162 of 179 9 of 179
Liberal economy (Rank, from Index of Econ. Freedom,
Heritage Foundation, 2008)
149 of 162 35 of 162
361Ethics in International Networks
villager access to a mobile telephone (www.ode
magazine.com/doc/22/).
Ownership of Grameenphone
When operations started on March 26, 1997, the
Grameenphone’s joint venture partners were
Grameen Telecom who owned 35% and Telenor
(Norway) who owned 51% plus two minor partners
(Singhal et al., 2005). In 2004, the minority partners
were almost totally bought out by Telenor. Gram-
een Bank did not have the funds to buy more than
3% of the available shares (Prasso, 2006). Telenor
presently holds a 62% share in the company with
Grameen Telecom holding the remaining 38%.
Telenor was a government owned telecommunica-
tions monopoly until it was deregulated in 1996,
however, the Norwegian government maintains a
controlling 54% share of Telenor (www.telenor.com)
(Figure 3).
Ownership conflicts
Dr. Yunus claimed, during his 2006 visit to Oslo to
receive the Nobel Peace Prize, that there was an
agreement with Telenor, which would allow
Grameen Bank to increase its ownership and gain
control of the very profitable Grameenphone. Dr.
Yunus would like to see Grameenphone be con-
trolled by Grameen Bank and the many microfinance
enterprises established throughout Bangladesh. His
expressed dissatisfaction with Telenor makes for a
potentially embarrassing situation for Norwegian
politicians and for Telenor.
When Muhammad Yunus travels to Norway to re-
ceive the Nobel Peace Prize Dec. 10, he will come
prepared to fight for management control over a
company he believes is sucking profits from the poor
of Bangladesh. While in Oslo, Yunus says he intends
to point out the irony that the country that is awarding
him the Nobel Prize for his pioneering work on mi-
crocredit is also home to a state-controlled company,
Telenor, which he says refuses to honor an agreement
to allow Yunus’s nonprofit Grameen Bank to take
majority control of their joint mobile-phone venture.
‘‘There’s tension between us and Telenor,’’ Yunus
told Fortune in an interview in Dhaka ahead of his
departure. ‘‘There’s a philosophical difference. They’re
oriented toward profit maximization. We’re oriented
toward social objectives.’’
Sheridan Prasso, Fortune December 5 2006: 6:49 AM EST
http://money.cnn.com/2006/12/04/news/international/
yunos_telenor.fortune/index.htm.
Mr. Jan Frederik Baksaas, Telenor’s CEO, states
that the last time a change in ownership structure
was discussed when the minority partners were
bought out. At that time, Grameen Bank was able to
buy only 3% of the shares (Prasso, 2006). However,
Dagbladet, a national Norwegian newspaper
reported in March 2006 that they had uncovered the
text of agreement. When revealed to Telenor, the
firm admitted they had made promises to Yunus but
claim that the agreement is not legally binding.
Also, the previous chairman of Grameenphone,
and present managing director of Grameen Telecom,
Muhammad Khalid Shams, states that Grameen has
insisted for years that Telenor renegotiate the man-
agement structure and honor the pledge made by Mr.
Hermansen, the former CEO of Telenor, whom he
claims was asked from the beginning to enter into a
non-profit venture with Grameen. Mr. Shams claims
Telenor has gone back on their word (Prasso, 2006).
Figure 3. Interacting entities surrounding Grameen-
phone.
362 Andreas W. Falkenberg and Joyce Falkenberg
On July 30, 2008 BBC News reported that
Grameen Telecom had offered to buy an additional
13% stake from Telenor, to gain control of the
business. At the same time, the Norwegian business
newspaper, Dagens Næringsliv, reported that Tel-
enor was willing to reduce its share by selling 11%,
but it was not willing to lose majority control.
On September 4, 2008, Telenor’s present CEO,
Jan Frederik Baksaas, met with Professor Yunus, at
the Nobel Peace Center in Oslo. One of the issues
discussed was the ownership conflict. Telenor stated
in a press release on September 5 that ‘‘the share-
holder agreement clearly states that any disagree-
ments should be resolved through Swedish
arbitration courts.’’ On his part, Yunus, in a press
statement the same day, stated:
Back in 1996, Telenor and we agreed that the joint
company within six years should be a locally operated
company with Bangladeshi management and Ban-
gladeshi majority ownership. This has not happened.
Telenor is unwilling to let go control of the company.
We are now are being told that the words of the written
agreement in a legal sense are non-committing state-
ments. We relied on the words of the agreement. We
believed in the agreed intentions of the parties. We
believed in business ethics and generally accepted
company government rules of conduct. We believed
that a Norwegian public listed company, controlled by
the Norwegian government, a government supportive
to the poor people of Bangladesh, would do as agreed.
Telenor now tells me that it was a mistake to rely on
their words… I am very optimistic about the eventual
outcome of this controversy because it is really in the
hands of the people of Norway, whom I have come to
know and trust. Norwegians set a very high standard for
business ethics, and they are the majority owners of
Telenor. I am confident the people of Norway will see
to it tat the companies that they own and control honor
their written intention, in all cases, and especially when
dealing with the poor women of Bangladesh. Statement
from Dr. Mohammad Yunus, September 5, 2008
During meetings with Telenor’s CEO, Dr. Yunus
was wearing a hidden microphone (www.abcny
heter.no/node/73556) for the purposes of a docu-
mentary, which is under production with Bill
Megalos (www.billmegalos.com). Telenor was not
aware of this, and it further eroded trust and
increased the tension in the joint venture. In the
media, the ‘‘greedy multinational’’ is positioned
against the ‘‘the savior of the poor.’’ This is an
uncomfortable situation for Telenor and the Nor-
wegian government, especially in Norway but also in
Bangladesh. There has been talk of law-suits, but none
has materialized so far (www.business.dk, 9 July,
2008).
Board control
Telenor appoints three board members to Gram-
eenphone and Grameen Telecom appoints two
board members; one of whom is also the head of
finance at Grameen Bank and associated with the
Village Phone Program. Grameen Telecom also has
an observer on the board. This means that Grameen
Telecom has effective negative control of Gram-
eenphone. However, in a statement by Professor
Yunus on September 5, 2008, he writes: ‘‘Telenor is
effectively running the joint company and has been
in charge of the management from the beginning…The people do not understand that Telenor runs the
company and that Grameen Telecom hardly has any
effective say in the company operation.’’
The suppliers
Up-stream, Grameenphone has more than 700
suppliers. On May 14, 2008 a television program
made by free-lance journalist Tom Heinemann was
shown on Danish and Norwegian television. The
documentary pointed to several areas of poor
working conditions on the part of suppliers who
were building telecommunications towers for Tel-
enor and Ericsson. Three major problems were re-
ported: child labor, unsafe working conditions, and
pollution problems.
• Child labor: One child employee stated there
were about 30 children working at one
plant; he earned about $1 for an 11 h day.
• Dangerous working conditions: The documentary
showed people working next to an open acid
bath and galvanizing tank containing 500�floating zinc. The towers were rust proofed
by being immersed in these tanks. There was
inadequate ventilation and protection for the
workers. Employees were balancing on the
edge of the acid baths. Others were involved
in steel construction of the towers wearing
363Ethics in International Networks
only sandals or assembling 75 m towers with-
out having safety ropes or nets. After the re-
lease of the documentary, nine deaths have
been reported by Telenor and by the media.
• Pollution: Rice fields were reported to be
contaminated because of run off water from
the plants. NKR Documentary ‘‘A Tower of
Promise’’ shown May 2008.
Telenor, after viewing the documentary, stated that
their control had not been good enough and accepted
responsibility for the lapse in their control system.
When the case turned up, the simplest solution would
have been to import the towers. But that would have
had extremely negative consequences for the employees
of the companies in Bangladesh. We decided instead to
clean up the companies so that they have good pro-
duction conditions. Telenor has consequently chosen to
follow what has become an important rule in the work
with ethical guidelines for subcontractors – that is, not
to break the contact with factories in developing
countries the moment criticisable conditions are
revealed, but rather work to improve conditions.
Pal Kvalheim, Telenor’s VP for Communications, to
Norwatch, May 20, 2008. (Gaarder, 2008).
They instead immediately started an investigation
of their suppliers and hired Det Norske Veritas (DnV)
to advise them on improving their production con-
ditions. ‘‘We have zero tolerance for any breach of
local laws and regulations. We have been working
methodically with the tower vendors to ensure
compliance with all local laws and regulations relating
to the use of child labor and health, safety and envi-
ronment issues.’’ Anders Jensen, chief executive of
Grameenphone, top cell phone carrier in Bangladesh
(Reuters UK, May 20, 2008). The contractors were
notified that Telenor would be coming, and when
Telenor arrived, the inspectors saw only one child
laborer (Gaarder, 2008).
Telenor sent a formal letter to the companies
involved, a ‘‘show cause notice.’’ The companies are
required to show that they are living up to the
contract. The sub-contractors were required to
confirm that their firm was in conformance with the
HMS requirements and ethical standards as stated in
the contracts with Telenor (Gaarder, 2008).
Grameenphone terminated the contract with one of
the suppliers, Mizan Hatim Engineering which had
delivered 1400 antenna towers since 1997. The supplier
had not shown sufficient willingness to comply with the
customer’s requests for improved working conditions.
The DnV report showed several instances in
which the contract terms were not being upheld,
and in which the Working Environment Act in
Bangladesh and Telenor’s own code of conduct
were not being followed. Telenor responded by
taking steps to deal with the breaches and by setting
up a group to secure health, safety, and environment
measures for their suppliers (www.telenor.com).
The Norwegian reaction to the Grameenphone
situation in Bangladesh has been strong. The CEO
of Telenor, Mr. Jan Frederik Baksaas has repeatedly
been on the defensive as he has been questioned by
the Norwegian news media.
The Daily Star newspaper in Dhaka writes that
there are 13 government inspectors whose job it is to
inspect the 14,000 factories in Bangladesh. Accord-
ing to UNICEF, there are some 13 million children
at work in Bangladesh. The age limit for this kind of
work in Bangladesh is 18 and the median age of the
population in Bangladesh is 22 years (Telenor Press
Release, September 5, 2008).
The customers
Down-stream, Grameenphone sells regular cell
phone services to its Bangladeshi customers.
Grameenphone has a local market share of 46%
representing some 20 million customers. These are
regular subscribers similar to what we find in most
countries. The company owns and operates a local
mobile-phone network which covers 97% of the
country (www.grameenphone.com).
In addition, the Village Phone Program represents
an interesting market segment. This program was
established and financed by Grameen Bank as a
microfinance project. The idea behind micro fi-
nance is to assist poor people in starting small busi-
ness in order to stimulate economic and social
development. The telephone venture was consistent
with this vision. It was the dream of Dr. Yunus to
provide every villager access to a mobile telephone.
It is estimated that as many as 100,000 million
people in Bangladesh now have access to phone
services thanks in part to the 300,000 Village Phone
Ladies (www.grameenphone.com).
364 Andreas W. Falkenberg and Joyce Falkenberg
Four businesses were involved in setting up the
Village Phone Lady segment: Grameenphone,
Grameen Telecom, Grameen Bank, and the mobile
handset owner in the village. Grameen Bank provided
bank loans to a village member (a Village Phone Lady)
so that she could buy or lease a mobile telephone from
Grameen Telecom. Grameen Telecom buys blocks of
time from Grameenphone for this group of customers.
The phone ladies provided telephone services to the
other villagers who could not afford a phone (Singhal et
al., 2005; Malaviya, et al., 2004).
Although the village phones have contributed
only a small percent toward Gameenphone reve-
nues, ‘‘they yielded a very high social impact in
terms of reaching millions of rural Bangladeshis who
previously did not have access to telephone ser-
vices.’’ This has had ‘‘a very positive economic
impact in rural areas, creating a substantial consumer
surplus, and immeasurable quality-of-life enhance-
ments’’ (Singhal et al., 2005, p. 430).
Grameen Bank currently covers more than 67,000
villages, which are serviced by 2121 bank branches all
over the country. As of May 2006, the bank had
6.33 million micro finance borrowers, 97% of whom
were women. Grameen Telecom’s objectives are to
provide easy access to GSM cellular services in rural
Bangladesh, creating new opportunities for income
generation through self-employment by providing
villagers with access to modern information and
communication-based technologies (www.grameen-
info.org).
Using Voice Over Internet Protocol
Grameenphone used Voice Over Internet Protocol
(VoIP) to receive calls from abroad. This is unlawful
and illegal. The law in Bangladesh requires private
operators to use the state owned monopoly Bangla-
desh Telecommunications Company Ltd. (BTRC),
the land phone network for international calls. Upon
being investigated, Anders Jensen, CEO of Gram-
eenphone stated:
We regret that such unlawful practices were carried
out and not disclosed earlier by Grameenphone… the
Grameenphone Board also mandated an investigation
by an external auditor to look into all aspects of our
operations to ensure that we fully comply with all laws
and regulations.
In his September 5, 2008 statement, Professor
Yunus separates himself from any of Grameen-
phone’s activities that have been found to be illegal:
The police report includes severe information regarding
Telenor’s involvement in the activities, and states, ‘‘It
can be perceived to the committee members that the
majority shareholders of Grameen Phone Ltd are in-
volved in encouraging the illegal VoIP business in the
international field.
The people do not understand that Telenor runs the
company and that Grameen Telecom hardly has any
effective say in the company operation. Grameen
Telecom and I have not yet been given all the facts
we need to have a complete understanding of the
alleged illegal activities. However, those activities
should be fully and independently investigated and
disclosed. We want the majority shareholder Telenor
to authorize complete transparency in all these mat-
ters, including the release to the public of the
shareholders agreement and all investigations of the
alleged charges. We cannot allow the Grameen name
to be tarnished directly or indirectly by inappropriate
operations.
We recently have received the police report from the
authorities’ investigation of the illegal activities… The
police report includes severe information regarding
Telenor’s involvement in the activities, and states, ‘‘It
can be perceived to the committee members that the
majority shareholders of Grameen Phone Ltd are in-
volved in encouraging the illegal VoIP business in the
international field.’’
Grameenphone has agreed to pay a fine of
$37.3 million to Bangladesh Telecommunication
Regulatory Commission (BTRC). Ten present and
former managers of Grameenphone are under
investigation. These investigations may be halted if
Grameenphone pays the fines. One can raise the
issue as to whether this monopoly benefits the
population of Bangladesh or if it is a source of rev-
enue for a selected group of government employees
(www.business.dk, 9 July, 2008)
Vision and goals
The vision for Professor Yunus was to bring tele-
phone services in the rural areas of Bangladesh and to
empower poor rural women by turning them into
‘‘telephone ladies.’’
365Ethics in International Networks
For its part, Telenor’s goals for its activities in Ban-
gladesh, are reflected in their approach to corporate
social responsibility: ‘‘based on two main principles: to
conduct business in a responsible manner and to bring
the benefits of mobile communications to a wider
audience’’ (www.telenor.corporate-responsibility).
Professor Yunus, in discussing the ownership
conflict with Telenor, states that ‘‘Both Telenor and
Grameen Telecom seek to maintain and expand the
growth and profits in the phone company… The
agenda of Telenor to maximize returns for the benefit
of its owners is, however, in conflict with the social
and non-profit agenda of Grameen Telecom. The
differences between Grameen and Telenor relate to
business ethics and corporate governance’’ (Statement
made by Professor Yunus in Oslo on September 5,
2008).
These different goals are also relevant with regard
to different performance measurements. During the
last 5 years, the Telenor shares have by and large
followed the index of the Oslo stock exchange from
an NOK share price in the high thirties in the
beginning of 2004 to a high around 140 in the
beginning of 2008 and then back down to the mid-
seventies at the beginning of October 2008
(www.dnbnor.no).
In April 2007, Grameenphone was identified as a
CSR champion by multiple donor organizations in
Bangladesh including UNDP and the Bangladesh
Enterprise Institute (www.telenor.com/cr/news/
_articles/aktuelt_20070503_2.shtm).
Exemplifying the responses
The case allows us to exemplify the responses pro-
posed in Table II. We begin with a general discus-
sion of the responsibility (ability to respond) of the
relevant players. We then focus on responses when
formal or informal institutions are adequate and not
followed (issue of ownership) and when institutions
are inadequate and voice is used (relationship with
subcontractors) or when benign civil disobedience is
used (the issue of VoIP). Finally, we address two
issues of a more general nature concerning respon-
sibility: who is able to respond, and to whom should
they respond? The first issue focuses on the ability to
respond on the part of the relevant actors; the second
concerns the general issue of flourishing, analyzing
the stakeholder–shareholder perspectives of the
major partners in Grameenphone.
Responsibility
We begin with a general discussion regarding the
responsibility of the relevant parties. Here, we in-
clude not only Telenor and Grameen Telecom who
are the major shareholders in Grameenphone, but
also the Norwegian government because of their
ownership of Telenor, and Professor Yunus through
the Grameen Bank.
Telenor is the majority owner in Grameenphone
(62%). In addition to being the majority shareholder,
Telenor assigns the role of CEO of Grameenphone
and has three of the five shareholders. Telenor can
influence the strategy and business practices em-
ployed by the firm, and thus is a responsible partner.
The Norwegian Government can exercise some
influence on the strategy and business practices
employed by Telenor through its 54% ownership,
and is ‘‘able to respond’’ or to influence management
practices of Telenor.
Professor Yunus has stated that the control lies
with Telenor. However, Grameen Telecom, as a
representative of the Grameen group, has negative
control in Grameenphone (38%). They can voice
opinions about the daily operations when the board
of Grameenphone has its meetings. The two board
representatives do not have the formal votes to force
Grameen Telecom’s recommendations on the
management practices employed. Yet, Professor
Yunus can influence the decisions made by Gram-
eenphone through (a) his negative control, (b)
through private and public moral suasion, and (c)
through his ownership of the name ‘‘Grameen.’’
Responding to the working conditions of the sub-contractors
The most relevant question in the case focuses on the
responsibility for the working conditions in the sub-
contractors, the builders of the mobile towers. The
conditions include child labor, unsafe working con-
ditions, environmental concerns, and deaths because
of lack of safety measures. The mezzo institutions,
Bangladesh laws, are adequate in terms of leading to
flourishing. However, the informal institutions in
366 Andreas W. Falkenberg and Joyce Falkenberg
Bangladesh do not support these formal institutions.
There is inadequate follow-up which may then lead
to acceptance of unsafe standards. Thus, the informal
institutions are inadequate, which keep flourishing
from happening as seen through either of the three
ethical perspectives; utilitarianism, human rights, and
justice. This is reflected in the micro institutions, the
working environment for the firms making mobile
towers, which are inadequate. Is Telenor responsible?
Is Telenor able to respond?
Telenor through Grameenphone as a major buyer
of telecommunications towers may have the ‘‘ability
to respond’’ to the work conditions of its suppliers.
A supplier typically listens to requests from a large
customer to land substantial orders. However, re-
quests for improved conditions for employees and
non-use of child labor may be deemed unnecessary
by local micro institutions and may be met with little
understanding by local mezzo and micro institutions.
Telenor, through Grameenphone, used voice to
gain compliance to the contractual agreements
which including specifics on the working condi-
tions. And through this response, they were able to
make changes to improve the flourishing. They
were able to respond, and did so. This response was
viewed as positive, in showing an attempt to make
changes in the micro level institutions, rather than
only using exit. In the case of one of their suppliers,
they chose to exit. The supplier seemed unwilling to
comply to the terms of the agreement. Hence,
Telenor, through Grameenphone, can respond both
by voice and exit when the informal mezzo and
micro institutions do not lead to flourishing.
Responding to Bangladeshi Regulatory Agency
The use of VoIP instead of the state owned
monopoly system could be a case of benign civil
disobedience. Although illegal, if the institutions are
inadequate, then an acceptable response would be to
ignore the law. Hence, the question becomes, does
the institution, in this case, the requirement to use
the state owned system, promote flourishing?
Complete information is not available for us to
determine if using VoIP allowed for higher profits
for Grameenphone, in which case, Grameenphone
should be fined for illegal activities, or if it allowed
for reduced prices for the Village Phone Ladies, in
which case benign civil disobedience could be jus-
tified.
It could behoove Telenor and Dr. Yunus to
help establish policies and routines, which would
promote flourishing for affected parties in Ban-
gladesh and even engage in ‘‘benign civil disobe-
dience.’’
Responding to the ownership conflict
A third issue from the case that needs to be ana-
lyzed is the ownership conflict between Telenor
and Grameen Telecom. Grameen Telecom claims
that Telenor should have, within 6 years (2002)
renegotiated the management structure and hon-
ored the pledge made by the former CEO of
Telenor. Telenor states that it was only an inten-
tion and not legally binding. This suggests that
there may be a mezzo level (in Norway) informal
institution, which is different from the macro level
formal institution.
Here, the necessary response is clear. The macro
level institutions are adequate and can be followed
for contractual relationships. If there exists a binding
contract, Telenor and Grameen Telecom need to
follow the terms stated in the agreement. Even if
Norway’s and/or Bangladeshi informal institutions
suggest a different interpretation of the agreement,
there would be a moral obligation on both parts. If
the terms of the agreement are under question, then
macro level institutions regarding arbitration can
come into play.
Thus, Telenor and Grameen Telecom can re-
spond to, and follow the macro level institutions for
international contracts. The formal institutions are
adequate and can be followed. If informal institu-
tions are different, and inadequate, they should not
be followed.
Responsibility – to whom?
We conclude this section by analyzing the differ-
ences in purposes between Telenor and Grameen
Telecom for Grameenphone. Telenor is a publically
traded company with a responsibility to its share-
holders. In addition to this bottom line, they also
have stated their corporate social responsibility.
367Ethics in International Networks
However, we need to be cognizant of the insti-
tutions present in the professional – the organiza-
tional – and the industrial environment (Hunt and
Vitell, 2006). The organizational culture in Telenor,
as a former state owned monopoly with extensive
rationing powers, may not be sensitive to the welfare
of customers, competitors, suppliers, or others af-
fected by the acts of the firm; i.e., not dedicated to
serving customers, but rather serving themselves.
These monopoly values may have persisted in some
parts of the organization, whereas other parts of the
organization have been forced to be more market
oriented. These values can be changed, from the top
of the organization in order to ensure ethical sensi-
tivity which may allow the organization to uncover
potential problem areas, and perform the required
analysis. CEO Baksaas is able to respond to this.
A related issue is whether Telenor is responsible
to Norwegian or Bangladeshi mezzo institutions? It
is difficult to argue ‘‘compliance with Bangladeshi
institutions’’ as ethically sufficient to a Norwegian
audience and to Norwegian political board mem-
bers. On the other hand, applying Norwegian
institutions to a business operation in a Bangladeshi
context may not be competitive/possible. However,
by establishing what ideal institutions may look like,
one can at least move in the direction of the ideal;
move from the ‘‘real’’ toward the ‘‘ideal.’’ In an ideal
situation, children should perhaps go to school full
time in order to be able to lead rich and flourishing
lives. However, this may not possible in Bangladesh,
where many children need to work to ensure
‘‘survival’’ (justice) for themselves and their families.
An improvement may be that children are hired to
do light and safe work for a limited number of hours,
get a meal and perhaps a few reading lessons.
This kind of arrangement may be ‘‘over and above’’
what is necessary by local institutions and thus more
costly for the firm. On the other hand, MNC’s from
the flourishing world can be good examples for local
actors and show that social equity and economic effi-
ciency can be achieved simultaneously.
Conclusions
In ethical analysis, it is important to ask the correct
questions. The framework presented here allows a
multinational organization to ask a number of key
questions about the institutions at different levels
(macro, mezzo, and micro). It also allows a test of
the relevant institutions against a few key ethical
perspectives to see if the institutions indeed promote
flourishing. Furthermore, a set of possible responses
to ethical dilemmas are outlined along with a rule of
thumb regarding power and responsibility for con-
duct inside the value creation network. Much work
remains in this area, including a thorough under-
standing of the institutions at work in different
jurisdictions.
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Andreas W. Falkenberg and Joyce Falkenberg
Faculty of Economics and Business Administration,
University of Agder,
Service box 422, 4604 Kristiansand, Norway
E-mail: [email protected];
369Ethics in International Networks